Acquisition

6 Months Ended

Jun. 30, 2024

BUSINESS COMBINATIONS

Cincinnati Bancorp, Inc.

On November 1, 2023, LCNB acquired Cincinnati Bancorp, Inc. (“CNNB”), the holding company for Cincinnati Federal, a federally chartered stock savings and loan association. Under the terms of the definitive merger agreement, CNNB merged with and into LCNB Corp., immediately followed by the merger of Cincinnati Federal with and into LCNB National Bank. CNNB operated four full-service branch offices in Cincinnati, Ohio and 1 full-service office in Florence, Kentucky, which became offices of LCNB after the merger. The merger significantly increased LCNB’s existing presence in the Cincinnati market and expanded LCNB’s community banking franchise across the Ohio River into the Northern Kentucky market.

CNNB results of operations were included in LCNB's results beginning November 1, 2023.

Under the terms of the merger agreement, CNNB shareholders had the opportunity to elect to receive either 0.9274 shares of LCNB Corp. stock or $17.21 in cash for each share of CNNB common stock owned, subject to the limitation that 80% of the consideration be in the form of LCNB Corp. common stock and 20% of the consideration be in the form of cash. The fair value of the common stock issued as part of the consideration was determined on the basis of the closing price of LCNB Corp.'s common stock on the acquisition date.

The following table summarizes the fair value of the total consideration transferred as a part of the CNNB acquisition and the fair value of identifiable assets acquired and liabilities assumed as originally reported at December 31, 2023 and as adjusted at June 30, 2024 (in thousands):


	December 31, 2023		Adjustments	June 30, 2024
Consideration:
Cash consideration	$	9,475	—	9,475
Common stock (2,042,598 shares issued at $13.99 per share)	28,576		—	28,576
Fair value of total consideration transferred	38,051		—	38,051

Identifiable Assets Acquired:
Cash and cash equivalents	11,368		—	11,368
Debt securities, available-for-sale	5,210		—	5,210
Federal Home Loan Bank stock	7,508		—	7,508
Loans, net	236,692		(363)	236,329
Premises and equipment	2,767		—	2,767
Operating lease right-of-use assets	64		—	64
Core deposit and other intangibles	8,391		—	8,391
Bank owned life insurance	4,413		—	4,413
Deferred income taxes	4,451		—	4,451
Other assets	12,950		(54)	12,896
Total identifiable assets acquired	293,814		(417)	293,397

Liabilities Assumed:
Deposits	210,532		—	210,532
Short-term borrowings	55,999		—	55,999
Long-term debt	5,963		—	5,963
Operating lease liabilities	68		(4)	64
Other liabilities	3,489		—	3,489
Total liabilities assumed	276,051		(4)	276,047

Total Identifiable Net Assets Acquired	17,763		(413)	17,350

Goodwill Resulting From Merger	$	20,288	413	20,701

The fair value and gross contractual amounts of non-PCD loans as of the acquisition date was $231.9 million and $258.6 million, respectively. LCNB recorded a provision for credit losses on these loans of $1,722,000.

As permitted by ASC No. 805-10-25, Business Combinations, the above estimated amounts may be adjusted up to one year after the closing date of the transaction to reflect any new information obtained about facts and circumstances existing at the acquisition date. As such, any changes in the estimated fair value of assets, including acquired loans, will be recognized in the period the adjustment is identified. The loan adjustment in the table above was due to a fair value adjustment to deferred fees and costs on loans acquired.

The amount of goodwill recorded reflects LCNB's expansion in the Cincinnati market and related synergies that are expected to result from the acquisition and represents the excess purchase price over the estimated fair value of the net assets acquired. The goodwill will not be amortizable on LCNB's financial records and will not be deductible for tax purposes. Goodwill will be subject to an annual test for impairment and the amount impaired, if any, will be charged to expense at the time of impairment. The core deposit intangible will be amortized over the estimated weighted average economic life of the various core deposit types, which is ten years.

Direct expenses related to the CNNB acquisition totaled $49,000 and $323,000 during the three and six months ended June 30, 2024, respectively, and totaled $390,000 and $415,000 during the three and six months ended June 30, 2023, respectively. They were expensed as incurred and are recorded as merger-related expenses in the consolidated statements of income.

Eagle Financial Bancorp, Inc.

On April 12, 2024, LCNB acquired Eagle Financial Bancorp, Inc. (“EFBI”), the holding company for EAGLE.bank, an Ohio state-chartered bank. Under the terms of the definitive merger agreement, EFBI merged with and into LCNB Corp., immediately followed by the merger of EAGLE.bank with and into LCNB National Bank. EAGLE.bank operated three full-service banking offices in Cincinnati, Ohio, which became offices of LCNB after the merger. This transaction increases LCNB’s presence in the Cincinnati market.

Subject to the terms of the merger agreement, EFBI shareholders had the opportunity to elect to receive either 1.1401 shares of LCNB Corp. stock, $19.10 per share in cash for each share of EFBI common stock owned, or a combination thereof subject to at least 60%, but not more than 70%, of the shares of EFBI being exchanged for LCNB common stock. The fair value of the common stock issued as part of the consideration was determined on the basis of the closing price of LCNB's common stock on the acquisition date.

The following table summarizes the fair value of the total consideration transferred as a part of the EFBI acquisition and the fair value of identifiable assets acquired and liabilities assumed as of the effective date of the transaction (in thousands):


Consideration:
Cash consideration	$	10,256
Common stock (918,128 shares issued at $14.04 per share)	12,891
Fair value of total consideration transferred	23,147

Identifiable Assets Acquired:
Cash and cash equivalents	8,029
Debt securities, available-for-sale	698
Federal Home Loan Bank stock	4,334
Loans, net	127,700
Premises and equipment	3,427
Operating lease right-of-use assets	48
Core deposit and other intangibles	3,760
Bank owned life insurance	3,004
Deferred income taxes	1,813
Other assets	2,590
Total identifiable assets acquired	155,403

Liabilities Assumed:
Deposits	132,435
Short-term borrowings	13,000

Operating lease liabilities	48
Other liabilities	773
Total liabilities assumed	146,256

Total Identifiable Net Assets Acquired	9,147

Goodwill Resulting From Merger	$	14,000

The fair value and gross contractual amounts of non-PCD loans as of the acquisition date was $101.7 million and $112.5 million, respectively. LCNB recorded a provision for credit losses on these loans of $763,000.

As permitted by ASC No. 805-10-25, Business Combinations, the above estimated amounts may be adjusted up to one year after the closing date of the transaction to reflect any new information obtained about facts and circumstances existing at the acquisition date. As such, any changes in the estimated fair value of assets will be recognized in the period the adjustment is identified.

Direct expenses related to the EFBI acquisition totaled $2,271,000 and $2,772,000 during the three and six months ended June 30, 2024, respectively, and totaled $25,000 and $25,000 during the three and six months ended June 30, 2023, respectively. They were expensed as incurred and are recorded as merger-related expenses in the consolidated statements of income.